Stock market indices tumbled in Tuesday's session, after opening positively in opening trade, as investors take note of Donald Trump's second-term in the office and its likely impact on US-China trade, the US Fed rate cuts and global growth ahead.
Donald Trump’s swearing-in as the new US President raises risk to global economic growth rate due to tariff hikes, said InCred Equities. This brokerage has cut its blended Nifty target by 8 per cent to 23,260 and sees the index falling to 21,016 in its bear base scenario.
"While the forward P/E valuation easing to the 10-year mean level provides comfort, the downward EPS revision trend is yet to fully bottom out. Our large-cap preference over small-caps and mid-caps, which played out well in the last six months, remains. Hopes from budget proposals pose short-term upside risks," it said.
At 11.30 am, the BSE Sensex stood at 76,347.03, down 726.41 points or 0.94 per cent. The NSE Nifty fell 179.90 points or 0.77 per cent to 23,164.85.
During the election campaign, Trump indicated that he would impose 60 per cent tariffs on Chinese imported goods and 10-20 per cent across-the-board tariffs. Following the US elections, he announced a plan to implement 25 per cent tariffs on Canada and Mexico.
ICICI Securities said if the Trump administration hypothetically follows through with its proposed 10 per cent blanket tariff on all countries (even higher for the top three US trade partners), total tariff collected on Indian imports could rise to $7-8 billion, hurting demand in case of its pass-through to US consumers.
"The other school of thought is that US being a monopsonist buyer, some of the tariff increase may be absorbed by exporters, thereby, squeezing export margins. Also, given that US may increase tariff at a higher rate for China, Mexico, Canada, etc., India could gain competitiveness in certain export commodities," it argued.
Nomura expects Trump to largely follow through on his campaign promise, but the proposals are likely to be softened, especially for tariffs on Canada and Mexico. "We expect Chinese tariffs to be raised by 35 percentage points cumulatively," it said.
S&P 500 futures rose 0.4 per cent and the US dollar index was down 1.2 per cent overnight, apparently on initial relief that Trump had not issued executive orders imposing tariffs on his first day in office.
"President Trump’s policy agenda—if enacted in its entirety—would have significant macroeconomic repercussions. However, financial and political constraints are likely to mean that enacted policy risks falling short of campaign pledges in some instances. There is also the consideration that the President may “escalate to deescalate,” with some of his proposals likely to prove to be negotiating tactics," UBS said.
Elara Securities said any extreme tariff or hardline immigration policy enactment may be inflationary in an economy that is at full equilibrium. It projects US Core PCE-based inflation at 2.5 per cent 2025.
"We see dollar Index (USD) nearing its peak and expect it to begin moderating in a sustained fashion from Q2CY25, as stronger USD impacts US corporates, offsets tariff impacts, US fiscal stress magnifies, a more conciliatory China ups the odds of negotiations with the US, the Fed stays on rate cut path (Elara Estimates: 50bps), albeit at a moderate pace, and the Bank of Japan (BOJ) hikes rates," it said.
The stock market is awaiting further clarity on this.
Stock maket themes
Elara Securities said it does not rule out near-term volatility, it is not in the camp that believes that the Indian economy is in structural slowdown. It sees the recent slowdown as cyclical and expect a gradual uptick as the year progresses.
It stayed overweight on IT and Pharma, near-term and prefer the government capex theme over consumption medium-term.
"We prefer banks (cheap valuation/ low asset quality risk and power (fair valuation after correction). We favor cement (near-term pick-up in government capex) and select defence and capital goods plays," Elara said.
The Trump administration may reinstate higher tariffs on solar panels, expanding the scope to inverters and batteries, and bringing Southeast Asian countries including Vietnam, Malaysia, and Thailand under the ambit of tariffs, which now dominate US solar imports.
Anlaysts said IRA reduction, a slow down the US solar capacity addition should hurt Indian exports and would be negative for Indian module manufacturers. If there is no change in IRA but an increase in import tariffs, exports from India will be less viable, and module prices in the US will increase against the rest of the world. "This will benefit Indian companies who are setting up plants in the US. Both Waaree Energies and Premier Energies are setting up facilities in the US. Higher US module prices will benefit these US units," Axis Securities said.
In the case of industrial metals, Canada and Mexico are major suppliers of steel and aluminium to the US. Imposing duty will increase US HRC steel prices against the rest of the world and increase aluminium metal premiums in the US. Some exports will be diverted to other countries, putting pressure on prices.
"Dollar index could remain strong, impacting base metal prices. However, the impact on each metal must be assessed in relation to other factors, including supply and demand drivers and Chinese stimulus. We prefers aluminium stocks over steel. Aluminium spot prices are strong despite a rally in the dollar index. Vedanta, NALCO and Hindalco are its preferred names in that order," it said.
An increase in drilling off the US coast and on Federal land would be positive for Welspun Corp, Axis Securities said.